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Why council rates and charges are just so special

29 September 2021

#Local Government

Why council rates and charges are just so special

A recent decision of the Supreme Court of Queensland in Kozik & Ors v Redland City Council [2021] QSC 233 was handed down on 13 September 2021, which required Redland City Council (Council) to refund the full amount of special rates and charges that it had levied with respect to land adjacent to its canal estates since 2011. The Council expended considerable funds in dredging, maintenance and managing environmentally relevant activities in relation to the canal estates and had sought to cover these costs because the service provided a special benefit to the landowners adjacent to the canal estates.

What happened

From July 2011 to 30 June 2017, the Council had passed resolutions to levy special rates and charges (Special Charges) against landowners whose land was adjacent to the Aquatic Paradise Canal Reserve and Marina, Sovereign Waters Lake Reserve and Raby Bay Cabal Reserve and Marina (Reserves) within the Redland local government area.

The Council has the power to levy Special Charges under the Local Government Act 2009 (LGA) and Local Government Regulation 2012 (LGR) and, before the enactment of the LGR, under section 28 of the superseded Local Government (Finance, Plans and Reporting ) Regulation 2010 (2010 LGR) which has similar provisions as the LGR.

Under the LGR, a local government may levy Special Charges for services, facilities and activities that have a special relationship to particular land because the land or occupier of the land:

  • specially benefits; or
  • has or will have special access; or
  • the land is, or will be, used in a way that specially contributes to the need; or
  • the occupier specially contributes to the need for the service facility or activity.

In this case, the Special Charges were to fund capital and operational expenditure for the services undertaken in the Reserves by the Council and for which the adjacent landowners were considered to receive a special benefit.

The Council issued rates notices from 2011-2017 and included the Special Charges to be paid by the landowners who dutifully paid the rates notices, including the Special Charges. However, around March 2017, the Council became aware that the Resolutions it had passed each year to levy the Special Charges were not validly made.

As a result, the Council refunded, with interest, the balance of the Special Charges that had not been expended for the services to each affected landowner.

The landowners then commenced proceedings in the Supreme Court to recover all the Special Charges they paid since 2011, which included the amount of the funds already spent by the Council to provide the services.

What does the law say

A local government must levy general rates for rateable land, a requirement under section 94 of the LGA. However, in addition to the general rates and charges, a local government may levy Special Charges if it chooses to do so and must follow the process set out in section 94 of the LGR. In this case, both the 2010 LGR and the LGR were relevant.

To levy rates and charges, a local government must pass the appropriate resolutions at its budget meeting each financial year, stating what rates and charges will apply for the coming financial year.

However, to levy Special Charges, a local government must also comply with the process set out in section 94B of the LGA and section 94 of the LGR. If it intends to levy Special Charges, a local government must pass a resolution that identifies the rateable land to which Special Charges will apply and adopt an overall plan.

The overall plan must be adopted when the local government first resolves to levy Special Charges and must include the following:

  • a description of the service, facility or activity that is the subject of the Special Charge
  • identifies the rateable land to which the Special Charge will apply
  • include an estimate of the cost of carrying out the overall plan
  • include an estimated time frame to carry out the overall plan.

In addition to the above, a local government must adopt an annual implementation plan if the proposed service, facility or activity costs need to be recovered over more than one financial year. The annual implementation plan, which sets out the activities of the overall plan that will be undertaken that financial year, must be adopted at the annual budget meeting until the service facility or activity identified in the overall plan has been completed.

Section 94 (14) of the LGR also provides that a resolution or overall plan is not invalid merely because it does not identify all rateable land to which the Special Charges could apply or where rateable land is included where the Special Charges should not have been levied.

Section 95 of the LGR also states that surplus Special Charges collected in a financial year can be retained for the following financial year’s annual implementation plan if it is not spent in the financial year in which it was collected. However, this is only the case for the duration of the overall plan. Once the overall plan expires, any surplus Special Charges must be refunded to the relevant ratepayer.

More relevant is section 98 of the LGR, which requires a local government to refund Special Charges if “a rates notice includes special rates and charges that were levied on land to which the special rates or charges do not apply or should not have been levied”. This section provides that while the rate notice is not invalid, the local government must return surplus Special Charges as soon as practicable.

What went wrong

The fundamental issue was that the resolutions passed by the Council in 2011 and 2012 identified a document as the overall plan, but this document did not include an estimate of costs or time to complete the overall plan. As such, the adoption of the overall plan, which was non-compliant with the requirements of the LGR, was invalid.

Failing to adopt a valid overall plan at the time the Council first resolved to levy Special Charges meant that the resolutions passed (by the Council) over the subsequent years were also invalid because the overall plan is, as held by the Court, the “central feature of the regulatory scheme for special rates and charges”.

The Court also held that because each of the resolutions was invalid, it “makes it appropriate to regard them as of no effect from the beginning and incapable of ever having provided legal effects”.

While the Council refunded unspent Special Charges (when it became aware that the resolutions were invalid), it did not refund an amount equivalent to the spent portion of the Special Charges, arguing that to refund the full amount would “unjustly enrich” the landowner who had, and would continue to, receive the benefit of the services already provided.

On this point, the Court held that “The Council cannot avoid or diminish its statutory obligation to return the amount of the Special Charges to each person who paid them, by a defence that the payers will be unjustly enriched by the return”. This is because the Special Charges were not valid from the beginning, and if the Council did not return the Special Charges in total, it would in effect retain funds to which it has no entitlement.

The Court held that the full amount of the Special Charges had to be returned to the relevant ratepayers because the Special Charge itself was invalid and should not have been levied. Therefore, by operation of section 98 of the LGR, the Council is required to refund the Special Charges in full.

It may be that the Council will appeal this decision given the implications and the Special Charges that will have to be refunded. Local governments throughout Queensland including those with canal estates for which Special Charges are levied will also be watching on with interest.

How we can help

Our team of local government lawyers regularly review and advise on rates and charges including the validity of special rates and charges and the process of drafting and adopting overall plans and annual implementation plans. If you need any assistance, please speak to us or contact us here.

Author: Eleanor Scott

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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